FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 UNDERSTANDING OUR BUSINESS CONTEXT 29 MESSAGE FROM THE GROUP CHIEF FINANCIAL OFFICER Management Discussion & Analysis HIGHLIGHT OF FINANCIAL RESULTS AND FINANCIAL CONDITION The Group registered total revenue of RM16.94 billion in 2017 (2016: RM17.24 billion), with this 2% decline attributed mainly to a 17% lower CPO sales volume despite the higher average price realised. This decrease was partly mitigated by the higher average selling price and sales volume of our US fatty acid and kernel crushing business, as well as the 46% higher average selling price per MT of our Rubber business. The Group registered a Profit Before Zakat and Tax (PBZT) growth of over 60% to RM416.59 million from RM260.30 million in 2016, mainly on account of increased CPO margin due to higher CPO prices, higher Refined Bleached Deodorised Palm Kernel Oil (RBDPKO) margin in our kernel crushing business, higher sales volume and foreign exchange gains in our fertiliser business, improved share of profits from our joint venture companies of RM6.19 million (from a loss of RM19.48 million in 2016), and a gain on disposal of AXA Affin of RM73.20 million. Earnings Per Share (EPS) rose over 100% to 3.90 sen in 2017 from 0.90 sen in 2016, an improvement mirrored by the over 100% increase in Return on Shareholders’ Funds to 2.56% in 2017. These metrics, coupled with the 5 sen interim dividend declared during the year, are evidence of the Group’s commitment to creating value for our valued Shareholders. The Group’s net cash generated from operating activities for the year increased by 44% against 2016 due to the higher profitability from Plantation Sector. Overall, cash and cash equivalents at the end of the year reduced by 9%, largely due to higher loan repayments and dividend payments made during the year. During the year, the Companies Act 2016 (2016 Act) came into effect on 31 January 2017, replacing the Companies Act 1965. Under the 2016 Act, the concept of par or nominal value of shares has been abolished and hence, the share premium, capital redemption reserve and authorised capital are no longer applicable. In accordance with Section 618(2) of the 2016 Act, the outstanding credit balance in the share premium account and capital redemption reserve of RM3,371.69 million and RM10.05 million respectively were transferred to share capital. MAINTAINING AN OPTIMAL COST STRUCTURE We continued to institute cost-saving measures throughout the organisation in 2017. These efforts tie in with our SP20 (V2) objective of creating an effective and efficient organisation through strengthening our core businesses and rationalising non-performing assets to achieve optimum operational performance. The Group’s liquidity management is centrally managed by our Treasury Management Centre (TMC) to meet group working capital and trade financing requirements. Almost all of our daily excess cash is concentrated in the TMC current account, enabling the Group’s efficient cash liquidity planning. This real- time daily cash management has reduced working capital and trade finance external borrowings, with our Group’s asset and liability management yielding net savings of RM6.50 million in 2017. Our Board approved a reduction in allowances for senior staff as a temporary cost-mitigating measure that will take effect from 1 January 2018. This initiative is expected to yield savings of RM1.40 million per year. Though seemingly small in magnitude, this initiative reflects management’s commitment to reduce costs even in areas where they are personally affected. Other Board-approved cost-optimisation initiatives that took effect from 1November 2017 include the amendment of hotel room entitlements, reduction in mileage claims and rationalisation of travel entitlements. We are striving to improve our profitability and Shareholders’ value while operating in an increasingly competitive business environment. To this end, our Board has approved a phased Voluntary Separation Scheme (VSS) to optimise our manpower requirements, where Phase 1 applies to General Managers and above. To date, 26 applications have been approved, with the total cost from this exercise amounting to RM10.96 million, whereby 80% of this cost will be recovered in 2018. Our Shared Services Centre (SSC) is encouraging all business units to utilise the Group’s auto debit functionality, which was introduced in response to Bank Negara Malaysia’s acceleration of e-payments through the gradual increase of cheque processing fees. Business units are expected to fully utilise this feature by end-2018, which will yield cost savings and improve payment efficiencies. SSC’s implementation of the Blanket Purchase Order (BPO) system, meanwhile, accelerates the processing of invoices and payment to vendors, as material management invoices will be immediately posted from the system. We are also implementing intercompany automatic postings to streamline and ensure the concurrent recognition of transactions by both parties. This will increase the accuracy of data and improve the financial reporting process. In addition, our automatic reconciliation of customer accounts directly from bank transactions expedites the identification of incoming payments and updates into the system. We have also started sending Dunning letters via e-mail to customers, thereby eliminating postage charges associated with the delivery of physical copies. EP EP